Author Question: You pay 20 down on a home with a purchase price of 180,000. Your bank will loan the remaining ... (Read 95 times)

asd123 · **on:** Jul 10, 2018

You pay 20 down on a home with a purchase price of 180,000. Your bank will loan the remaining balance of 144,000 at 7 APR. You have an option to make annual payments or monthly payments on the loan.

Both options have a 30-year payment schedule. What is the annuity payment under the annual plan? What is the annuity payment under the monthly plan?
What will be an ideal response?

Question 2

Compare the risk of a 90-day unsecured promissory note issued by Southwest Airlines to a 20-year
U.S. Government Treasury bond.

A) The Treasury bond has a lower financial risk and a lower interest rate risk.
B) The Treasury bond has a lower interest rate risk, but higher financial risk.
C) The Treasury bond has a higher interest rate risk, and a higher financial risk.
D) The Treasury bond has a lower financial risk, but a higher interest rate risk.

kbennett34 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: The bank will loan (1 - 0.2) 180,000 = 144,000, and this is the PV. The PVIFA using r = 7 and n = 30 is 12.40904.
The annual annuity payment is: PMT = = = 11,604.44.
The PVIFA using = 0.58333 and n = 30 12 = 360 periods is 150.30757.
The monthly annuity payment is: PMT = = = 958.04.

Answer to Question 2

D